The Table below shows bottles of wine and bottles of becer that the United State
ID: 1149123 • Letter: T
Question
The Table below shows bottles of wine and bottles of becer that the United States and France can produce with one hour of labor times under three different hypothetical situations. In each case identify the commodity in which the United States and France have: a. An absolute advantage or disadvantage b. acomparative advantage or disadvantage indicate whether or not trade is possible in each case and the basis for the trade. Case B Cass C Case A US Eranse US FranceUS France 2,500 2,000 1,875 5,500 5,000 4,000 2,500 2,750 Wine (bottle/man hours) 2,250 5,600 Beer (botle/man hours) 4,500 2,800 Case A. a. Case B. Case C Case A. b. Case B. Case C. Case A. Case B. Case CExplanation / Answer
Absolute Advantage:
Case 1: USA has the absolute advantage in the production of both beer and wine as it can produce more bottles of both in one hour.
Case 2:France has the absolute advantage in the production of both beer and wine as it can produce more bottles of both in one hour.
Case3: USA has an absolute advantage in the production of beer whereas France has an absolute advantage in wine as both produce more bottles in an hour as compared to the other country.
Comparative advantage:
Case 1:
Both countries have identical opportunity costs and therefore neither have comparative advantages.
Case 2:
France has a comparative advantage in producing wine as it has a lower opportunity cost whereas USA has a comparative advantage in the production of beer as it has a lower opportunity cost as compared to wine.
Case 3:
USA has a comparative advantage in producing wine as it has a lower opportunity cost whereas France has a comparative advantage in the production of beer as it has a lower opportunity cost as compared to wine.
Case 1: Trade will not be possible or beneficial.
Case 2:Trade will be beneficial for both countries. USA will specialize in the production of beer and export it whereas France will specialize in the production of wine and export it.
Case 3:
Trade will be beneficial for both countries. France will specialize in the production of beer and export it whereas USA will specialize in the production of wine and export it.
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